TPP no longer about free trade

Despite talks between Prime Minister Shinzo Abe and U.S. President Barack Obama in Tokyo on April 24 to iron out differences on the projected Trans-Pacific Partnership (TPP) free trade scheme, a subsequent joint statement went no further than saying that “we have identified a path forward on important bilateral TPP issues.”

The Japanese and U.S. governments had high hopes for the TPP to provide opportunities to grow their economies and expand employment opportunities.

Now, however, it has become more of a burden for fear of potential damage that would be incurred by both Tokyo and Washington because of the difficulties in the talks on the scheme.

At the root of the difficulties that the two governments face is the ambiguity in the “agreement” reached at a previous Abe-Obama meeting in Washington on Feb. 22, 2013.

Saying that the meeting confirmed that the TPP agreement would not be premised on across-the-board elimination of import tariffs, Abe reversed his Liberal Democratic Party’s public pledge that it would oppose Japan’s participation in the TPP talks if they were predicated on a total abolition of tariffs.

In bargaining with the U.S., however, Japan was forced to pay an excessively high price to become a party to the TPP talks by agreeing to lift curbs on imports of American beef imposed after an outbreak of bovine spongiform encephalopathy (BSE or commonly known as mad cow disease) in the U.S. and to permit Aflac Inc., an American insurance firm, to market its products through the postal networks in Japan.

And bilateral negotiations are still dragging on to date regarding import tariffs on five product categories which Japan regards as “sanctuaries” (rice, wheat and barley, beef and pork, dairy products, and sugar).

At the same time, debates in Japan on trade liberalization have been distorted with those having vested interests demanding budget-based compensatory measures.

After Japan was admitted as a party to the TPP talks in July 2013, a major turning point came on Nov. 13 when 151 members of the U.S. House of Representatives wrote jointly to Obama, expressing their opposition to granting him fast-track negotiating authority. This has resulted in depriving his administration of flexibility in conducting the TPP talks.

Watching this development with a cool mind from Japan were the Japan Agricultural Cooperatives Group (JA Group) and bureaucrats of the Ministry of Agriculture, Forestry and Fisheries, both of which had vehemently opposed the TPP scheme.

These two groups and LDP lawmakers representing the farming bloc agree that the TPP talks have entered the stage of a contest for endurance and that Japan should not make the first move designed to move the talks by offering a concession. These three groups have now revived their triangle alliance.

Unable to make any move to break the impasse in their TPP-related bilateral talks, Japan and the U.S. started looking for support from other members of the TPP talks. Tokyo made advances to Australia, and Washington to Mexico and Chile.

On April 7, Abe and his Australian counterpart, Tony Abbott, met in Tokyo and resolved key issues for a bilateral economic partnership agreement (EPA). Although this is one of the few achievements attributed to Abe in the field of external trade, its content does not appear to be as praiseworthy as the two governments try to suggest.

Under the pact, Japan will make 88 percent of all import items free of tariffs in 10 years, but this falls far short of “more than 95 percent” targeted in the TPP talks. The duties on frozen beef will be halved to 19.5 percent and those on chilled beef will be cut by about 40 percent to 23.5 percent.

Although Finance Ministry officials have described these tariff cuts in the Japan-Australia EPA as much more drastic than had been expected, they are more than offset by a safeguard” clause under which Japan may apply the old high duties in case of a steep rise in beef imports. The threshold for exercising that right for the initial year is set at about 330,000 tons — less than the yearly average of 340,000 tons that Australia has exported to Japan the past five years.

Although the government explains that this arrangement is a “safeguard” measure, it is in fact nothing less than a tariff quota system that may serve to lower beef prices in Japan to some extent but has the effect of setting Australian beef’s share in the Japanese market at a certain level. This system will protect Japanese livestock farmers while enabling Australia to avert competition with U.S. beef in the Japanese market. This is tantamount to trade control, rather than trade liberalization, because the system will allow Australia to sell its beef to Japan at a low tariff rate up to a set volume.

Similar tariff quotas are also applied to cheese, frozen yogurt and ice cream imports. Moreover, food producers importing cheese and cocoa preparations at low duties are required to use domestically produced ingredients to certain percentages.

Another factor that must not be overlooked is that all the duties imposed on beef imports used to be funneled to the Livestock Department of the farm ministry. Part of this was earmarked for paying big annual remunerations of ¥20 million to retired sub-Cabinet level ministry officials who move onto jobs in the Livestock Industry Promotion Corp. The revenue from beef import duties — which used to amount to ¥100 billion — will drop sharply as a result of the deal with Australia.

Bureaucrats and politicians with vested interests in this area have joined hands with the JA Group and livestock farmers to amplify the fears over the deal’s effect on Japan’s livestock industry. They have already started lobbying to use taxpayer money to pay expenditures for a new measure to protect Japan’s livestock industry.

Agriculture minister Yoshimasa Hayashi has said that his ministry will use the experience gained from the EPA negotiations with Australia in the TPP talks, indicating that his ministry would again resort to tricky tactics like a tariff quota system and requirement that businesses that use imported items also use domestic items.

The TPP talks, the original aim of which was a total abolition of import duties, have already undergone a metamorphosis in terms of their basic nature.

Even if Japan and the U.S. should succeed in resolving their differences, the results would not be a free trade system that gives broad-ranging benefits to people. It is certain that the TPP scheme will be degraded to a system of “nonfree trade” that will increase the involvement and control of bureaucrats while it injects huge subsidies to certain interest groups.

This is an abridged translation of an article from the May issue of Sentaku, a monthly magazine covering Japanese political, social and economic scenes.